Eni S.p.A. (NYSE:E) Q4 2023 Earnings Call Transcript February 16, 2024
Eni S.p.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, ladies and gentlemen. And welcome to Eni's 2023 Fourth Quarter Results Conference Call hosted by Mr. Claudio Descalzi, Chief Executive Officer. For the duration of the call, you will be in listen-only mode. [Operator Instructions] I am now handing you over to your hosts to begin today's conference. Thank you.
Claudio Descalzi: Thank you. Good afternoon and welcome to our 2023 Full Year and Q4 Result presentation. 2023 was an excellent year for Eni. Our continuous focus has been on mitigating the impact of a market characterized by price and margin volatility, as well as a critical geopolitical contest. We maintain a direction aligned with our strategy and successfully achieved or beat our targets for the year while also improving the efficiency of our assets. This resulted in the second best financial performance by Eni in its current structure. Our aim was to capture strong results but also to foster our growth ambitions, meaning we also advanced our transition strategy very significantly. It has been a very active year, so now let's go through the highlights.
In the upstream, we brought on stream two important operated projects in line with our fast track model of phased development. Baleine Phase 1 started production at the end of August, less than 18 months from the FID. At the end of December, we announced the first production of gas into the Tango facility at our Congo LNG project, only 12 months after sanction. Key to our EMP strategy is fitting in new advantage resources from our industry-leading exploration. The highlight was Geng North, the largest commercial discovery in the industry last year. Indonesia will become an area of major focus for our upstream in the coming years, benefiting from a network of facilities with spare capacity that will help to fast-track future production at competitive costs.
But Indonesia was not a standalone success. In fact, our Nargis exploration well in Egypt, offshore was also a top five discovery. A distinctive feature of Eni strategy is our organic model, but also focus portfolio management plays a critical role as we shape our business. Undoubtedly, our highest profile deal was the purchase of Neptune, announced in June and completed at the end of January, a few months earlier than expected. I will update you a little more on that shortly. We are constantly looking high grade our portfolio also via divestment. And in the year, we announced the sale of noncore reproducing asset in Congo and Nigeria onshore, both of which were approaching completion. In December, we were delighted to announce the investment by Energy Infrastructure Partners into Plenitude, providing new and aligned capital to support its growth path, while also confirming and valorizing part of the value we have already created.
The satellite model of which Plenitude is an example with its circa 10 EUR 10 billion of enterprise value is a key enabler for Eni to sustain growth and deliver shareholder value across the multiple energy vectors we are focused on. In EniLive, our purchase of a 50% stake in the Chalmette biorefinery in the US marked a new stage of in establishing a leading international and integrated biorefining business. In addition, we acquire full control of Novamont, a market leader in biochemical sector, which will become another pillar in our strategy of transformation. In CCS, we reached an agreement with the UK government on key terms of the economic, regulatory and governance model for the transportation and storage of CO2 on INET. This is a major step forward for a line of business that will be increasingly important over the coming years and where Eni has a leading European position.
The progress we have made from a strategic perspective was also echoed in Eni’s operating performance. Full year production of 1.65 million barrel per day in the upper end of the guidance range and 3% higher year-on-year. We discovered around 900 million barrel of new resources which more than covers 2023 production. A mid-lower European demand of gas, our GDP was effective in meeting customer needs in the absence of Russian volumes, and also recorded the highest result in the East Israel. Plenitude to end of the year with a 3 gigawatt of historic renewable capacity, up by more than one-third year-on-year and in line with guidance. 2023 biorefineries throughputs were up almost 60% year-on-year, while biofuel capacity at 1.65 million ton per year was 50% higher after our US acquisition.
Our upstream net carbon scope 1 and 2 footprint, fell by 10% in 2023 and is now down by 40% versus the 2018 baseline, in line with our aim to net zero in the upstream by 2030. Turning to our financial results, the news is also positive. EBIT performance of EUR 17.8 billion including EUR 4 billion from associate is second highest result in the history of the company in its current form. Net profit of EUR 8.3 billion converts to EUR 16.5 billion of CFFO and both confirm the historical top end of our yearly performance. In fact, this excellent result reflects a very significant improvement versus our expectations. Around EUR 3.5 billion on EBIT and EUR 2 billion on cash flow, that offset the impact of the weaker scenario. CapEx of EUR 9.2 billion was below our budget of EUR 9.5 billion, confirming that we are at efficiently investing in the context of a rigorous capital discipline.
A drilling platform in the middle of open sea, extracting crude oil.
We stepped up, shared buyback in the fourth quarter to EUR 790 million, totaling EUR 1.8 billion for the year with a round of EUR 400 million to finish our program in Q1. Our full payout is equivalent to around 32% of our 2023 adjusted CFFO, above our original guidance. Shares issue is down 9% over the past two years, enhancing the participation in a business that is also increasingly bigger and better. Indeed, in the past two years, Eni distributed almost EUR 11 billion to its shareholders, the highest amount since our listing. Leverage at 20% remains low by historical standards, and the balance sheet provides us with flexibility to pursue our strategy while retaining considerable resilience. That is an overview of the strategic, operational, and financial delivery for the year.
I'll now move on the business division in a little more detail. Starting with EMP production for the fuel year was 1.66 million barrel per day, up 3% year-on-year, and up 6% in the quarter to 1.71 million barrel per day. In the quarter, we saw higher activity in Algeria, seasonal effects in the North Sea, and the benefit of strong regularity in Kazakhstan. Baleine ramp up and better performance and entitlement in Libya. Full year proforma EBIT in EMP of EUR 13.3 billion mainly reflect the impact of lower prices when compared with 2022, partly compensated by higher volumes while Q4 earnings include higher exploration write-offs which is typical of the quarter. GGP reported EBIT of EUR 680 million in Q4, benefiting from a favorable outcome to an arbitration in the quarter, but with an underlying result muted by lower gas prices and reduced trading flexibility, as we had expected it to be.
Record full year EBIT of almost EUR 3.3 billion took the benefit of strong optimization activity in the first half of the year, in particular highlighting the leverage to favorable conditions that GDP retains by virtue of its diverse supply and infrastructure position. Our Neptune acquisition was one of the key events of 2023. After announcing the deal in late June, we achieved completion on the 31st of January for an investment of $2.4 billion in cash out and debt acquired. Adjusted down from the headline of $2.6 billion as a result of the cash flows accruing since the deal's reference date. Net production consolidated directly by Eni and through our share of Var is currently over 100, 000 barrel per day. The high proportion of gas production currently around 75%, and the low scope 1 and 2 emission profile precisely aligned with our strategic direction.
The value proposition is clear with synergies estimated at $0.5 billion and with material upside which includes the new discovery of Geng and the higher share of IDD field in Indonesia, additional gas supply optimization, and potential CCUS project. Our portfolio activity will also progress as we continue to high grade with announced divestment in West Africa to complete in 2024. Turning to energy evolution, EniLive reported around a 10% improvement in EBIT year-on-year despite weaker product markets, mainly reflecting improved biorefinery performance both in terms of asset optimization and the feedstock flexibility confirming our vertically integrated model is delivering. With activities now in eight countries, agri feedstock production has increased to more than 40, 000 tons per year and it is on track to provide meaningful earnings over time.
Our refining earnings were impacted by the fall in the SEM but also by the narrowing in light, heavy and sweet sour differential. Our chemicals result reflects the very challenging market conditions, especially for European manufacturers, and confirm our strategic intent to transform this business and also to increase focus on specialties and bioplastics. Plenitude delivers on its target for store renewables capacity of 3 gigawatts at the end up by more than one third. Renewable energy production actually grew more, up by over 50%. But more importantly, Plenitude to deliver financial result with a full year EBIT up 50% year-on-year to over EUR 500 million and EBITDA up 40% year-on-year to over EUR 900 million. After the remarkably strong first month, Q4 EBIT as expected made a more moderate contribution reflecting higher depreciation charges as new renewable capacity and EV charging points enter service.
The 2023 result of Plenitude came in the context of another highly volatile and challenging year for energy suppliers and again emphasized the quality of the model. This fact is recognized in the enterprise value of EUR 10 billion placed on the business by the recent agreement with Energy Infrastructure Partners to invest in Plenitude. Before concluding I would like to highlight the key results of the year that exceeded all the regional metrics both operating and financial right across the business. This strong financial outcome driven by the operating performance of the underlying businesses and the delivery of significant strategic progress all helped in outcome where we deliver the best shareholder returns among our peers group in 2023. We will update on our strategic progress and future targets when we meet again on the 14th of March for our Capital Markets Day.
We will elaborate on how Eni is the changes in energy markets to build a stronger company leveraging the growth potential of new business while preserving the full value of traditional sources, team that are evident in our 2023 result. And now with our top manager, we are ready to answer your question.
